Macroeconomics and microeconomics are both significantly important economical factors which should be examined and incorporated when drafting the blueprint for a company’s success. Microeconomics is the branch of economics that deals with human behavior and choices as they relate to relatively small units such as an individual, a firm, an industry or a single market (Foundations of Microeconomics.(n.d.). Macroeconomics, on the other hand, is the branch of economics that deals with the entire economy at large. Both of these economic branches combined weigh heavily in importance when trying to achieve corporate success as microeconomics deals with key players that are seen time and time again such as consumers, business firms and factor owners and macroeconomics engage in critical conversations regarding macroeconomic problems, policies, theories and views of how the economy functions (Foundations of Microeconomics.(n.d.). As XYZ is expanding internationally and is also in the process of revamping its information technology and human resources departments, both macroeconomic and microeconomic reviews will be conducted and will play a vital role in the growing success of XYZ Company.
The general concept of elasticity provides a technique used for estimating the response of one variable to changes in another variable. The price elasticity of demand is a measure of the responsiveness of quantity demanded to changes in price (Foundations of Microeconomics.(n.d.).
Last year, XYZ has raised the cost of all women’s jewelry sold in their accessories departments by 20%. As a result, however, the quantity demand for XYZ’s jewelry has fallen by 40%. Therefore, the coefficient of price elasticity of demand (the percentage change in quantity demanded divided by the percentage change in price, 40 divided by 20) is 2, which means that the percentage in quantity demanded will be two times any percentage changed in price. In an effort to increase the demand for jewelry and increase the sales of the accessories department as a whole, XYZ will be reducing its cost of jewelry by 10% in 2016.
The diamond-water paradox, also known as the paradox of value, uses the cost of diamonds verses the cost of water as an example to show that necessities often cost far less than the cost of luxuries as water is inexpensive and diamonds are expensive (Foundations of Microeconomics.(n.d.). The total satisfaction that a consumer receives from an item they have purchased is known as total utility. Utils, a fictional measurement denomination can be used to measure the amount of usefulness a consumer can receive from an item they have purchased (Foundations of Microeconomics.(n.d.). For example, purchasing snow boots from XYZ may get 15 utils as they were used during the first snow fall of the year. When a second pair of snow boots are purchased from XYZ for an upcoming snow blizzard, a consumer may get 30 utils. Marginal utility is an additional utility which is gained from purchasing an additional unit of a good where the change in the quantity consumed of a good is usually equal to 1 unit. For example, a consumer gets 20 utils from purchasing a pair of snow boots last winter. The same consumer gets 35 utils from purchasing a second pair of snow boots last winter as well. The marginal utility from the second pair is 15. The more snow boots a consumer purchases, the total utility will rise. However, the marginal utility will fall.
With this understanding, XYZ management knows that consumers will buy the goods that provide them with the most satisfaction first and will purchase items that provide them with less satisfaction thereafter. Institutional theory and a qualitative investigation of Fatshionistas shows that plus-sized consumers want more options from mainstream fashion marketers instead of specialized stores which cater to only plus-sized women, states author Daiane Scaraboto in the article titled Frustrated Fashionistas: An Institutional Theory Perspective on Consumer Quests for Greater Choice in Mainstream Markets. (Scaraboto & Fischer, 2014)
To ensure an increase in sales as well as customer satisfaction, as mentioned in prior reports regarding XYZ’s advertising and telecommunications advancements, more detailed customer surveys regarding the comparison of different products within the same genre will be given and carefully examined. The products which have provided the most satisfaction to customers in the jewelry, footwear, jeans, sweater, blouse, undergarment, hosiery and business suit departments will be manufactured and ordered more than those which rank as less useful so they may cause an increase in sales, profitability as well as customer satisfaction leading to an increase in customers.
In an article titled Supply and Demand Effects On Supply Chain Flexibility: An Empirical Exploration, the author Sanatandul Mandal stated “Supply chain flexibility has become a critical supply chain capability recently when firms are facing an increasing number of disruptions. Flexibility represents the capability of a firm to respond to undesired changes in its core processes and in the marketplace. Supply chain flexibility therefore is one of the competitive weapons that a firm possess in today’s market” (Mandal, 2015). This article discusses the ever increasing changes that occur in the marketplace. This statement focuses on the extreme importance of flexibility when unforeseen changes occur.
Productions and Costs:
Production is the transformation of resources or inputs into goods and services. There are two types of inputs in the production process: fixed and variable. A fixed input is a quantity that cannot be changed as output changes (Foundations of Microeconomics.(n.d.). XYZ currently has 21 stores and 17 offices in the United States, as well as 8 manufacturing plants in the United States as well as in China combined. Each location is leased on a monthly basis ranging from $1,800 to $2,700 per month. Regardless of how many of XYZ’s products are manufactured, produced or sold, this rent still needs to be paid monthly on time to ensure XYZ’s operations can still run. In contrast, a variable input is an input whose quantity can be changed as the output changes. XYZ currently produces approximately 525,000 clothing and accessory items monthly for each store location. These clothing and accessory items, known as variable inputs, may increase or decrease in production over time. Therefore, an increase or decrease in production will result in the hiring or laying off of the number of XYZ employees, or even store locations. A systematic review has been conducted by XYZ’s finance department and operations department which has estimated the company’s budget for 2016. Due to a lower budget due to a decrease in sales in 2015 by 27%, XYZ will relocate certain stores, offices and manufacturing plants with monthly rents over $2,000 to new spaces for lesser monthly rents to decrease costs. In addition, remaining stores, offices and plants which cannot be relocated due to lack of spaces under $2,000 will be closed. A future review will be conducted to decide what percentage of XYZ’s workforce needs to result in a layoff to decrease costs as well. Goods surveyed to be secondary in usefulness will be produced far less as well, and goods purchased for being the most useful will be increased to increase profit and increase XYZ’s budget for 2017 for future store locations.
Supply and Demand:
“Today, apparel supply chains are becoming more prone to both controllable and uncontrollable risks. This phenomenon may be attributed to many causes but not limited to less vertical integration, fragmentation of supply chain ownership, short product life cycle, ever-changing customer expectations, increasing level of competition, environmental regulations, rapid technology obsolescence, etc. These risks deteriorate directly the apparel supply chain performance in terms of both efficiency and responsiveness. Therefore, the Apparel Supply Chain (ASC) managers should identify and analyze the risks related to their supply chains so that appropriate mitigation strategies can be developed to enhance the supply chain performance” (Routroy & Shankar, 2014).
The buying side of the market, the consumers and consumer purchases are often referred to as the demand. The selling side of the market, companies and corporations, are usually referred to as the supply. The demand is based on the consumer’s willingness and ability to buy products at different prices and different times. Without such willingness and ability, there is no demand. The law of demand explains that as prices rise that demand falls and as prices fall that demand rises. (Foundations of Microeconomics.(n.d.). XYZ has created a demand schedule for its upcoming Spring clothing line products. Supply is the willingness and ability of a company to produce different quantities of a good, at different prices and at different times.
Last year in the Spring of 2015, the company’s best selling items were the XYZ logo windbreakers and XYZ logo baseball caps. In understanding that an increase in price will result in a decrease in demand, XYZ has raised the prices for these items by only 2% in hopes that at such a low price increase that the items will sell as much and the company will receive a small profit in 2016. These prices will drop down 2% as the Spring season comes to a close and will be less in demand.
Aggregate Supply and Aggregate Demand:
As with supply and demand regarding the economics of the marketplace, supply and demand exists in the economy as a whole too, known as aggregate supply and aggregate demand. The real balance effect states that when price levels fall, purchasing power rises, monetary power rises and more goods are bought. It also states that when price levels rise, purchasing power falls, monetary power falls and fewer goods are bought. In addition, the interest rate effect explains that as interests rise, the less likely individuals are to finance products (Foundations of Macroeconomics.(n.d.).
In understanding this relationship between aggregate supply and demand, XYZ has lowered the monthly interest rates on XYZ’s credit cards for its cardholders from 3.5% to 1.5%. By lowering the monthly interest rates on the company’s credit cards issued to qualified consumers, more consumers will be interested in opening up XYZ credit cards which will promote more sales and increase profit.
In regards to macroeconomic measurements, the price level is measured by constructing a price index such as the CPI (Consumer Price Index). A CPI is based on a group of goods and services purchased by a typical household. The group of goods, known as the market basket, includes eight major categories of goods and services such as: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication. For the CPI to be properly calculated, the total dollar expenditure on the market basket must be calculated for both the current year and the base year. The CPI in the base year is equal to 100. The total dollar expenditure on market in the current year must be divided by the total dollar on market basket in base year and multiplied by 100. Inflation and unemployment rates need to be taken into consideration as well (Foundations of Macroeconomics.(n.d.).
XYZ has an accurate detailed account of the CPI for 2016, in which focuses on apparel, training for employees, medical insurance offered to higher level full time employees, telecommunications, and locations. Since the total expenditure for 2016 is significantly higher than the previous years, including the base year, changes have been made. Such changes include the production of only the most purchased textiles, elimination of medical benefits offered to employees, decrease in newer installed computers, larger but lesser trainings offered to employees, and relocations to spaces with less expensive rents.
Macroeconomics and microeconomics play key roles in creating a successful organization. Both branches of economics expose a company’s financial weaknesses, insight into the future, and an ability to plan for a company’s success. Macroeconomics and microeconomics are invaluable to a company as paying attention to such factors and incorporating them into a company’s strategy will aid in the efforts of creating a strong and growing company. XYZ uses both branches of economics to ensure its success in the future.